End of the road for Takata? Air bag maker may file for bankruptcy next week

NEW YORK/WASHINGTON/TOKYO – Takata Corp , facing billions in liabilities stemming from its defective air bag inflators, is preparing to file for bankruptcy as early as next week as it works toward a deal for financial backing from U.S. auto-parts maker Key Safety Systems Inc., sources said on Thursday.

With liabilities exceeding ¥1 trillion ($9 billion), Takata’s bankruptcy would be the largest corporate failure involving a manufacturer in postwar Japan.

The supplier is expected to seek protection in Japan first, with its U.S. subsidiary filing for Chapter 11 bankruptcy shortly thereafter, another source who asked not to identified said. Trading on Takata shares were suspended by Tokyo Stock Exchange from 8:20 a.m. Friday to confirm the authenticity of media reports, the exchange said on its website.

“They were trying to avoid this as much as possible,” Scott Upham, the president of Valient Market Research, said of Takata. “That’s what has been holding this up. But all of the bidders insisted that this happen so they can manage the liabilities.”

Takata, one of the world’s biggest automotive suppliers, has been working for months to complete a deal with Key Safety.

A person briefed on the matter said Key was expected to acquire Takata assets as part of bankruptcy restructuring.

Nikkei reported a new company created under Key will purchase Takata operations for about ¥180 billion ($1.62 billion) and continue supplying air bags, seat belts and other products, leaving liabilities behind in a separate entity.

A bankruptcy filing would mark the end for an iconic Japanese company that started out as a textile maker and produced parachutes for the Imperial Japanese Army during World War II. Honda Motor Co., a Takata shareholder and the auto-parts maker’s largest customer, first started recalling Accord and Civic models in 2008 due to the flaw that may end up being Takata’s undoing.

Takata declined comment. Michigan-based Key, owned by Chinese supplier Ningbo Joyson, did not immediately respond to a request for comment.

Also at stake is $850 million owed by Takata to major global automakers under a settlement agreed earlier this year stemming from the automotive industry’s largest-ever safety recall.

Other sources, who asked for anonymity because they were not authorized to speak with the media, said a final deal with Key may not be reached before Takata files for bankruptcy.

Major global car manufacturers have expressed concern about the company filing for bankruptcy without a deal in place because of the disruption it could cause to the production of replacement air bag inflators. More than 65 percent of 46.2 million recalled Takata air bag inflators in the U.S. have not been repaired.

A U.S. judge said earlier this year the costs of replacing all of the faulty Takata inflators could be $8 billion.

In January, Takata agreed to plead guilty to criminal wrongdoing and to pay $1 billion to resolve a U.S. Justice Department investigation into ruptures of its air bag inflators linked to at least 16 deaths worldwide. They also have been blamed for more than 180 injuries worldwide.

A federal grand jury in January indicted three former Takata executives for criminal wrongdoing in connection with the safety defect.

Takata has already paid a $25 million fine and $125 million to a victims’ compensation fund, including for future incidents.

Takata has until early 2018 to pay the $850 million owed to automakers, or within five days of securing a financial backer. Then-U.S. Attorney Barbara McQuade said in January that if Takata filed for bankruptcy, the Justice Department would be a creditor in the restructuring.

Key was chosen by Takata earlier this year as the favored buyer for the company. Since then, Key has been working with Takata on a restructuring plan.

Inflator recalls began around 2008 and involve around 100 million inflators around the world used in vehicles made by 19 automakers, including Honda Motor Co., Ford Motor Co., Volkswagen AG and Tesla Inc. Recalls are to continue through at least the end of 2019.

Last month, four automakers including Toyota Motor Corp. agreed to a $553 million settlement to address class-action economic loss claims covering owners of nearly 16 million recalled vehicles with Takata inflators.

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